The numbers are in for what the 10 largest hedge funds in America have been buying, letting us see which three companies had the most wanted stock in the third quarter.
According to the latest data from S&P Capital IQ and its Hedge Fund Tracker, AbbVie (NYSE:ABBV), Actavis (NYSE:AGN), and Alibaba (NYSE:BABA) were the most desirable in the third quarter, and whether through new positions or adding on to existing stakes, the funds made nearly $1.5 billion of new investments in all three.
A prospective big acquisition
In the third quarter, pharmaceutical firm AbbVie announced strong second quarter results that beat the expectations of Wall Street analysts on the back of strong sales from one of its signature drugs, Humira.
But the biggest news happened just days prior when it had reached an agreement with Dublin-based big pharma firm Shire in a $54 billion acquisition that would provide a sizable benefit by cutting AbbVie's tax rate from 22% to 13%, leading to savings of nearly $1.3 billion by 2020.
However, the honeymoon didn't last long, as the Obama administration immediately began calling for an end to corporate tax inversion efforts -- although AbbVie said that was not the motivation of the deal -- and sparks began to fly.
Ultimately, the proposed merger fell through officially in October -- the holdings for these hedge funds is as of the end of September -- after the Treasury Department declared new rules to inhibit tax inversion efforts. And as a result, AbbVie had to pay a $1.6 billion breakup fee to Shire.
Many were excited about what the deal would do for AbbVie and its shareholders, so it will be interesting to see how the hedge funds respond in the fourth quarter now that the deal is officially off the table.
An actual big acquisition
Although the AbbVie and Shire bubble burst, one big bio-pharma merger that didn't was the acquisition of Forest Laboratories by Actavis, which was first announced in February, approved by the Federal Trade Commission on the last day of June and officially finalized the first day of the third quarter.
To the delight of investors, the company notes this move could be a real game-changer. It expects the merger will create "approximately $1 billion in operating and tax synergies to be realized within three years," and, in addition, "Actavis further expects to generate strong operating cash flow in excess of $4 billion on a pro forma basis for 2015," allowing it to "rapidly de-lever the balance sheet."
But it wasn't just prospective results that looked promising, but also its current ones as well. It announced in early August that in the second quarter its earnings per share jumped 70% to $3.42.
The executive chairman of Actavis, Paul Bisaro, noted in the announcement of the second quarter results:
Overall revenue growth of 31% in our commercial pharmaceutical business was supported by our North American Brands business, which benefited from the expanded portfolio resulting from the acquisition of Warner Chilcott in October 2013, as well as continued strong sales of core products in the U.S. We also saw strong growth within our generics business, powered by our strong base business along with continued strong sales of the generic versions of Lidoderm and Cymbalta.
In other words, the news was seemingly nothing but good for Actavis in the third quarter, so it's no wonder billionaires like George Soros and others decided to load up.
Five hudge funds amassed stakes worth a total of $1.4 billion in Alibaba, the China-based e-commerce giant that IPO'd on September 19.
And while we don't know at what price or when the hedge funds purchased their shares, if they were among the initial investors, they would have benefited from the stock's staggering 38% increase on its first day of trading. The stock has continued its climb since then and now totals more than 53% from its IPO price of $68 a share. I'm sure the hedge funds are delighted with its performance thus far.
It will be interesting to see whether or not the hedge funds cash in on their gains in the fourth quarter -- as they are known to do -- because the reality is, there seems to be a lot to like about the firm and its future investment prospects.
Billionaires and hedge funds are always on the hunt for the next great investment, and in the third quarter they clearly believed these three funds were at the top of the list.